Apple Inc., maker of the iPad, iPod and a host of other devices, is being criticized by Congressional investigators for avoiding paying billions of dollars in taxes. CEO Timothy Cook appeared Tuesday before the Senate Permanent Subcommittee on Investigations to defend the company's practices.
The technology giant is not accused of doing anything illegal, but of avoiding paying at least $74 billion in taxes between 2009 and 2012 by using offshore subsidiaries. Apple claims to have paid more than $6 billion in taxes last year, but by placing money in subsidiaries based abroad it sidestepped billions more.
The tactics are not uncommon among large companies. But when they come to light they tend to lead to public outcry and calls to close the loopholes that allow for such practices.
One Apple subsidiary, Apple Operations International, is incorporated in Ireland. That country bases tax jurisdiction on where companies are managed and controlled (in this case, the United States), while the United States focuses on where companies are incorporated (in this case, Ireland). Because of the two countries' tax laws, Apple was able to avoid paying taxes on the $30 billion in revenue Apple Operations International claimed between 2009 and 2012. The company would have to pay taxes on the earnings were it to return the profits to the United States.
In a statement before the hearing, Cook said, “Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad."
Democratic Sen. Carl Levin of Michigan, chairman of the Senate subcommittee, called tax avoidance strategies like that being employed by Apple "gimmicks" and said they harm the U.S. economy:
They offload Apple's tax burden onto other taxpayers – in particular, onto working families and small businesses … The lost tax revenue feeds a budget deficit that has reached troubling proportions, and has helped lead to round after round of budget slashing and the ill-advised sequestration now threatening our economic recovery.
Kentucky Sen. Rand Paul, a Republican, however, said it was Congress' own fault for creating such a confusing tax code that allowed for such offshore practices. He said "Apple has done more to enrich people's lives than politicians will ever do."
"I'm offended by the spectacle of dragging in executives from an American company that is not doing anything illegal," Paul said. "Instead of doing the right thing, we drag businessmen and women in here to berate them for trying to maximize their profits for shareholders."
What do you think? Is Carl Levin or Rand Paul right on Apple's tax avoidance? Take the poll and comment below.
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